How 10.4 Million New Immigrants Would Boost the Economy

People shout out against the Strengthen and Fortify Enforcement Act in the hall outside the House Judiciary Committee hearing on Capitol Hill in Washington, Tuesday, June 18, 2013. (AP Photo/Carolyn Kaster)

By 2023, the United States will add 10.4 million people to its population if immigration reform passes the Senate in its current form, according to a new Congressional Budget Office report. That's about the current combined populations of D.C., Delaware, and New Jersey. It's also more than the current total population of Sweden. But as CBO and others have made clear, this seemingly gigantic increase would actually be a really good thing for the U.S. economy and budget.

How could such large population increases help the federal budget? CBO estimates that between 2014 and 2023, federal direct spending would increase by $262 billion, chiefly on tax credits and health care for the larger population. But that spending would be more than offset by a $459 billion increase in federal revenues, mainly from income and payroll taxes over the same period. That's a $197 billion decrease in deficits from 2014-2023.

But the impact of the projected population increase on the U.S. economy is what could be a real boon.

The CBO estimates that the total-factor productivity of the U.S. would increase by 0.7 percent by 2023 and 1.0 percent by 2033 compared with current law. "Total-factor productivity" may sound like an excessively wonky term, but this increase would translate to higher real gross domestic product (an estimated increase of 3.3 percent in 2023) and higher wages.

The expected hike in productivity is in part because of CBO's assumption that a wave of new immigrants, particularly highly skilled immigrants, would result in more innovation, specialization, and economic output. Additionally, CBO expects that new, working-age immigrants would, on average, participate in the workforce at a higher rate than their counterparts already in the United States. This would result in the overall labor force expanding by 3.5 percent in 2023 and higher general employment as the demand for goods, services, and labor increases.

This estimate meshes with a 2011 report from the Brookings Institution that found that low-skilled immigrants have higher rates of employment and lower rates of household poverty than their U.S. counterparts.

As Charles Kenny wrote last year in Bloomberg Businessweek, the current, aging U.S. population could really use this infusion of millions of young immigrants. And it's not just to pump revenue into Medicare and Social Security:

By 2030, nearly 70 percent of Latinos who came to the U.S. during the 1990s are expected to own a home, according to John Pitkin, Julie Park, and Dowell Myers from the University of Southern California. That's good news, the researchers point out, because the 78 million-strong baby-boom generation in the U.S. will be looking to downsize as their children leave home. Workers from Latin America were central to building the boomer housing stock, and they'll be central to ensure it is still worth something in 20 years.

So while a 3 percent increase in the U.S. population over the next decade may sound like a lot for our economy and budget to handle, in reality it may just be a good start.